Update on Social Security withholdings deferral
On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA, 2021) was signed into law. The CAA extends provisions relating to the Presidential Memoranda to Defer Employee Social Security Taxes. Additional details are provided below in our previous e-mail sent August 31, 2020.
- the date employers will be required to withhold and pay the amount deferred has been extended from April 30, 2021 to December 31, 2021
- Interest and penalties will now begin to accrue January 1, 2022
If you have any questions regarding the above information or would like to discuss your specific situation, please contact our office.
Previous Guidance from Us on August 31, 2020
Dear Employers:
As you may be aware, on August 8, 2020, President Trump signed a Presidential Memoranda (a copy is attached) to permit the deferral of the employee’s portion of Social Security taxes for many employees. The Memoranda directs the Treasury Secretary to defer the withholding, deposit and payment of the employee’s share of Social Security without any penalties or interest for the following:
- Wages paid from September 1, 2020 to December 31, 2020, and
- The pre-tax wages to the employee are generally less than $4,000 on a bi-weekly basis (this threshold is for each employee)
The Memoranda further states that the Secretary of the Treasury shall issue guidance relating to implementation and explore avenues to eliminate the obligation to pay the withholdings deferred.
The Department of Treasury and Internal Revenue Service issued guidance implementing the Presidential Memoranda; it is posted at https://www.irs.gov/newsroom/guidance-issued-to-implement-presidential-memorandum-deferring-certain-employee-social-security-tax-withholding; and attached as Notice 2020-65. The notice provides a limited amount of guidance. It addresses the following key issues:
- The threshold of $4,000 for pre-tax wages is to be determined on a pay period-by-pay period basis.
- The employer will be required to withhold and pay the amount deferred between January 1, 2021 and April 30, 2021.
- Interest and penalties will begin to accrue May 1, 2021.
- The employer may make other arrangements to collect the deferral from the employee.
As of today, no guidance has been issued to indicate that tax forgiveness has been addressed, thus as of now the employee WILL have to pay deferred amount back. The American Institute of Certified Public Accountants (AICPA) previously issued a news release noting that the Treasury Secretary has indicated that the payroll tax deferral would not be mandatory for employers to implement. The notice issued today does not state that the deferral is mandatory; it only states that the due date of the withholding has been postponed.
While guidance is slim, we know that your employees will be looking to you as their employer for answers. Based on the Memoranda and initial guidance on this policy, we do not believe (at this time), that employers are required to defer the employee’s share of Social Security. If you as an employer choose to implement the Memoranda supported by Notice 2020-65 but without further guidance, we suggest that you require each employee to make an election to either (a) elect not to defer their portion of Social Security or (b) to defer their withholding for Social Security and agree to repay during the period specified in the notice.
If you, as an employer allow the employee to make the deferral, we recommend that you remind your employees that should the Treasury Secretary not “find a way” to eliminate the deferral, they would need to repay that amount through payroll withholdings from January 1, 2021 to April 30, 2021 or make payment directly to the employer prior to April 30, 2021. This mandate and notice leave many unanswered questions, such as what happens if the employee quits before repaying the deferred withholdings? We’ll send an update once we receive further guidance, but wanted you to have something in hand to guide your decision on upcoming payrolls.
Please let us know if you have any questions.
